Light sweet crude for September delivery plunged 2.49 percent or $2.29 to $89.54 a barrel in electronic trading on the New York Mercantile Exchange during European trading hours. Brent crude oil futures for September delivery plunged 2.12 percent or $2.27 to $104.56 a barrel on the ICE futures exchange in London.

Concerns over the euro zone crisis resurfaced once again as Spain's borrowing costs has surged uncomfortably close to bailout levels since its shaking 10-year debt auction last week. Spanish stocks slumped Friday after the eastern region of Valencia said it would apply for financial assistance from the Central Government. Meanwhile, Murcia region is expected to ask Madrid for financial assistance this week.

Spanish benchmark 10-year bond yields soared to 7.32 percent, exceeding the 7 percent rate at which Greece, Ireland and Portugal were forced to seek financial aids as doubt spread among bond investors that the short-term support measures available to policymakers currently lack the firepower needed to address the crisis and that a full sovereign bailout is inevitable sometime in the future.

Worries about Greece was also revived after a report by Bloomberg Sunday stated that the International Monetary Fund could cut off any more rescue aid to the country. The troika consisting of the European Commission, the European Central Bank and the IMF will meet in Athens Monday to discuss whether the debt ridden country will receive fresh tranche of 31.5 billion euros by September under its debt rescue program.

Like so many times over the last two-plus years, the market has been reminded of the fragility of any rally, and how European landmines are forever present and ready to detonate at any time, Cameron Peacock, analyst at IG Markets, told Reuters.

Meanwhile, fears over the economic slowdown in the world's second largest oil importer also weighed on the sentiment. Song Guoqing, a member of the People's Bank of China monetary policy committee, predicted that the GDP growth would slow to 7.4 percent in third quarter, suggesting that demand for crude would weaken.